☑ QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

☐ TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934

For the transition period from ______ to _______

Commission File Number 333-160517

PETRON ENERGY II, INC.

(Exact name of registrant as specified in its
charter)

Nevada

26-3121630

(State of incorporation)

(I.R.S. Employer Identification No.)

17950 Preston Road, Suite 960

Dallas, Texas 75252

(Address of principal executive offices)

(972) 272-8190

(Registrant’s telephone number)

Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

☑
Yes ☐No

Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such files). ☑Yes
☐No (Not required)

Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions
of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of
the Exchange Act.

Large accelerated filer ☐

Accelerated filer ☐

Non-accelerated filer ☐

Smaller reporting company ☑

Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐
Yes ☑ No

As of August 5, 2014, there were
59,014,774 shares of the registrant’s $0.00001 par value common stock issued and outstanding.

EXPLANATORY NOTE

The purpose of this Amendment No. 1 to the
Quarterly Report of Petron Energy II, Inc. (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2014,
filed with the Securities and Exchange Commission on August 7, 2014 (the “Form 10-Q”), is to make certain changes to
the disclosures related to common stock and preferred stock in the financial statements set forth therein.

PETRON ENERGY II, INC.

TABLE OF CONTENTS

Page No.

PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

F-1

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

2

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

7

Item 4.

Controls and Procedures

7

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

8

Item1A.

Risk Factors

8

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

8

Item 3.

Defaults Upon Senior Securities

10

Item 4.

Mine Safety Disclosures

10

Item 5.

Other Information

10

Item 6.

Exhibits

11

Signatures

12

Special Note Regarding Forward-Looking Statements

Information included in this Form 10-Q contains
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”),
and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). This information may involve known
and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Petron Energy
II, Inc. (the “Company”), to be materially different from future results, performance or achievements expressed or
implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe future plans, strategies
and expectations of the Company, are generally identifiable by use of the words “may,” “will,” “should,”
“expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project”
or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are
based on assumptions that may be incorrect, and there can be no assurance that these projections included in these forward-looking
statements will come to pass. Actual results of the Company could differ materially from those expressed or implied by the forward-looking
statements as a result of various factors. Except as required by applicable laws, the Company has no obligation to update publicly
any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

*Please note that throughout this Quarterly
Report, and unless otherwise noted, the words "we," "our," "us," the "Company," "PEII,"
or “Petron” is in reference to Petron Energy II, Inc.

1

PART I - FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

PETRON ENERGY II, INC.

INDEX TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS as of June 30, 2014 (unaudited)

and December 31, 2013

F-2

CONSOLIDATED STATEMENTS OF OPERATIONS for the three months

and six months ended June
30, 2014 and 2013 (unaudited)

F-3

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT for the

year ended December
31, 2013 and the six months ended June 30, 2014 (unaudited)

The accompanying notes are an integral part
of these financial statements.

F-2

PETRON ENERGY II, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2014

2013

2014

2013

Revenues

Oil and Gas Sales

$

33,201

$

20,760

$

111,527

$

127,634

Costs and Expenses

Cost of Revenue

149,241

238,697

321,936

341,997

Depletion and Depreciation

70,485

74,265

151,795

124,245

Derivative Expense

3,126,054

159,000

4,460,027

241,300

General and Administrative

832,515

781,857

1,430,803

982,178

Interest

177,152

89,985

318,168

144,548

Total Expenses

4,355,447

1,343,805

6,682,729

1,834,268

Loss from Operations Before Income Taxes

(4,322,246

)

(1,323,045

)

(6,571,202

)

(1,706,634

)

Income Taxes

—

—

—

—

Net Loss

$

(4,322,246

)

$

(1,323,045

)

$

(6,571,202

)

$

(1,706,634

)

Loss per share--basic and diluted

$

(0.43

)

$

(15.26

)

$

(1.02

)

$

(25.96

)

Weighted average number of shares--basic and diluted

10,107,233

86,692

6,465,911

65,746

The accompanying notes are an integral part
of these financial statements.

F-3

PETRON ENERGY II, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

For the year ended December 31, 2013 and the six months ended June 30, 2014
(unaudited)

Preferred Stock

Series A

Series B

Common Stock

Additional

Number

Number

Number

Paid-in

Accumulated

of Shares

Amount

of Shares

Amount

of Shares

Amount

Capital

Deficit

Total

Balance December 31, 2012 as originally reported

1,000

$ 1

5,910,000

5,910

11,976,942

$ 1,198

$ 14,649,439

$ (19,821,223)

$ (5,164,675)

Reverse Stock Split

(11,952,988)

(1,198)

1,198

Balance December 31, 2012 (Restated)

1,000

1

5,910,000

5,910

23,954

-

14,650,637

(19,821,223)

(5,164,675)

Common Stock and Warrants Issued for Services

16,844

-

137,075

137,075

Common Stock Issued in Lawsuit Settlement

5,901

-

138,000

138,000

Common Stock Issued for Loan Fees

6,667

-

160,300

160,300

Common Stock Sales

82,283

1

525,149

525,150

Conversion of Notes Payable

463,216

5

586,771

586,776

Derivative Expense

731,266

731,266

Conversion of Preferred Stock

(4,962,502)

(4,963)

285,307

3

4,962,499

4,957,539

Imputed Interest on Shareholder Notes

22,084

22,084

Net Loss

(4,301,095)

(4,301,095)

Balance December 31, 2013

1,000

1

947,498

947

884,172

9

21,913,781

(24,122,318)

(2,207,580)

Common Stock for Services

293,651

3

217,597

217,600

Common Stock Sales

594,850

6

353,404

353,410

Issuances Related to Equity Purchase Line

600,000

6

119,114

119,120

Conversion of Notes Payable

17,667,340

176

1,922,492

1,922,668

Derivative Expense

3,769,316

3,769,316

Conversion of Preferred Stock

(378,060)

(378)

608,134

6

378,051

377,679

Imputed Interest on Shareholder Notes

3,718

3,718

Net Loss

(6,571,202)

(6,571,202)

Balance June 30, 2014 (unaudited)

1,000

$ 1

569,438

$ 569

20,648,147

$ 206

$ 28,677,473

$ (30,693,520)

$ (2,015,271)

The accompanying notes are an integral part
of these financial statements.

F-4

PETRON ENERGY II, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN CASH FLOW

(unaudited)

Six Months Ended June 30,

2014

2013

OPERATING ACTIVITIES

Net Loss

$

(6,571,202

)

$

(1,706,634

)

Adjustments to reconcile net loss to

cash used by operating activities:

Depletion and depreciation

151,795

124,245

Accretion of asset retirement obligation

8,710

—

Amortization of debt discount

87,125

70,800

Imputed interest on shareholder loans

3,718

—

Derivative expense

4,460,027

241,300

Penalty interest

—

45,250

Common stock issued for services

217,600

46,500

Common stock issued for lawsuit settlement

—

138,000

Change in other assets and liabilities:

Increase in oil and gas receivables

(1,042

)

(19,994

)

(Increase) Decrease in other assets

(4,615

)

3,237

(Decrease) Increase in accounts payable

(961,894

)

169,597

Increase in accrued
liabilities

174,717

203,443

Cash used in operating activities

(2,435,062

)

(684,256

)

INVESTING ACTIVITIES

Investment in oil and gas properties

(211,261

)

—

Proceeds from the sale of equipment

24,500

—

Pipeline investment

—

(121,000

)

Accounts payable dedicated for asset purchase

—

121,000

Purchase of other equipment

(7,563

)

(2,516

)

Cash used in investing activities

(194,324

)

(2,516

)

FINANCING ACTIVITIES

Increase in bank overdraft

(49,352

)

63,295

Proceeds from sales of common stock

353,410

256,500

Proceeds from equity line

119,120

—

Proceeds from notes payable

3,050,823

431,811

Repayment of notes payable

(925,906

)

—

Decrease in deposit to lender

81,187

—

Loan fees

—

(79,825

)

Cash from financing activities

2,629,282

671,781

Decrease in cash

(105

)

(14,991

)

Cash at beginning of period

105

17,089

Cash at end of period

$

—

$

2,098

Supplemental Disclosure of Cash Flow Information

Non-Cash Investing and Financing Activities:

Notes payable

$

(1,560,658

)

$

(20,800

)

Common stock

1,517,931

26,067

Preferred stock

(378

)

(3,692

)

Additional paid-in capital

3,298,215

3,869,515

Derivative liability

(2,790,514

)

(22,300

)

Common stock issuance liability

(377,681

)

(3,588,490

)

Accrued liabilities

(40,557

)

—

Loan fees

—

(260,300

)

Oil and gas properties

231,359

—

Asset retirement obligation

(231,359

)

—

Other assets

(46,358

)

—

$

—

$

—

The accompanying notes are an integral part
of these financial statements.

F-5

PETRON ENERGY II, INC.

NOTES TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS

June 30, 2014 and 2013

1. INCORPORATION AND NATURE OF OPERATIONS

Petron Energy II,
Inc. (“Petron” or the “Company”) was formerly known as Petron Energy Special Corp. and was incorporated
in June 2007 under the laws of the State of Texas; and, on April 2011, was reincorporated in the state of Nevada. Pursuant to a
Plan of Merger, the parent company, Petron Energy Special Corp. was merged into its wholly owned subsidiary, Petron Energy II,
Inc. The surviving entity was Petron Energy II, Inc. The effective date of the Plan of Merger was January 3, 2012.

The Company is
engaged primarily in the acquisition, development, production, exploration for and the sale of oil, gas and gas liquids in the
United States. As of June 30, 2014 the Company is operating in the states of Texas and Oklahoma. In addition, the Company operates
two gas gathering systems located in Tulsa, Wagoner, Rogers and Mayes counties of Oklahoma. The pipeline consists of approximately
132 miles of steel and poly pipe, a gas processing plant and other ancillary equipment. The Company sells its oil and gas products
primarily to a domestic pipeline and to another oil company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying
consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries:

Subsidiary Name

Organization Date

Petron Energy II Pipeline, Inc.

April 1, 2008

Petron Energy II Well Service, Inc.

July 1, 2008

The interim consolidated
financial statements as of June 30, 2014 and 2013 have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, these consolidated financial statements do not include all of the disclosures required
by generally accepted accounting principles for complete financial statements. These interim unaudited consolidated financial statements
should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31,
2013. In the opinion of management, the interim unaudited consolidated financial statements furnished herein include all adjustments,
all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim periods presented.

The consolidated statements
of operations reflect the results of operations of the Company for the three month and six month periods ended June 30, 2014 and
2013. Operating results for the six month period ended June 30, 2014 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2014.

3. CAPITAL STRUCTURE

On May 30, 2014, the Company,
by and through its Board of Directors and with written consent of a majority of its shareholders entitle to vote, filed an amendment
to the Company’s Articles of Incorporation effectuating an increase in the total number of authorized stock of the Company
from 15,010,000,000 to 25,010,000,000 shares consisting of 25,000,000,000 shares of common stock, par value $0.0001 per share and
10,000,000 shares of preferred stock with a par value of $0.001 per share.

On June 20, 2014, the
Company, by and through its Board of Directors and with written consent of a majority of its shareholders entitled to vote, effectuated
an amendment to the Company’s Articles of Incorporation regarding a change in the par value of the Company’s common
stock from $0.0001 per common stock share to $0.00001 per common stock share.

4. SUBSEQUENT EVENTS

On July 3, 2014, the Company
effectuated a reverse stock split of its common shares whereby every five hundred (500) pre-split shares of common stock were exchanged
for one (1) post-split share of the Company’s common stock. . All shares of common stock in the financial statements have
been adjusted to reflect this reverse stock split.

On July 14, 2014 the Company
amended its Articles of Incorporation to reduce the number of authorized shares of common stock from 25,000,000,000 to 2,000,000,000.

[End Notes to Financial Statements]

F-6

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Management's Discussion and Analysis
of Financial Condition and Results of Operations (MD&A) contains forward-looking statements that involve known and unknown
risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements
to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those
forward-looking statements. You can identify forward-looking statements by the use of the words may, will, should, could, expects,
plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms. These
statements are only predictions. In evaluating these statements, you should consider various factors which may cause our actual
results to differ materially from any forward-looking statements. Although we believe that the exceptions reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Therefore, actual
results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation
to revise or update publicly any forward-looking statements for any reason.

Results of Operations

For the Three Month Period Ended June
30, 2014 versus June 30, 2013

Our net loss for the three
month period ended June 30, 2014 was $4,322,346 as compared to a loss for the three month period ended June 30, 2013 of $1,323,045.
The most significant factor contributing to this loss was our effort to satisfy our accounts payable through the issuance of convertible
debt. The significance of this effort can be seen in the following condensed comparison of the results of operations for the three
month periods ended June 30, 2014 and 2013:

For the Three Months Ended

Increase or

June 2014

June 2013

(Decrease)

% Change

Revenue

$

33,201

$

20,760

$

12,441

60

%

Cost of Revenue

149,241

$

238,693

$

(89,452

)

-37

%

Depletion and Depreciation

70,485

74,265

(3,780

)

-5

%

Derivative Expense

3,126,054

159,000

2,967,054

1866

%

General and Administrative Expense

832,515

781,857

50,658

6

%

Interest Expense

177,152

89,986

87,166

97

%

4,355,447

1,343,801

Net Loss

$

(4,322,246

)

$

(1,323,045

)

In 2013 we were able
to amicably settle a lease issue with a company related to one of our oil and gas leases in Oklahoma. We made an adjustment
to reduce revenue by $22,610. After removing the impact of this adjustment, the revenue for the three month period ended
June 2014 was approximately $10,000 lower than that of the comparable period in 2013. The reason for this decrease is that
the largest producing lease, Simon, was shut down in April of 2014 to allow the Company to complete a secondary
recovery workover project on the lease. The production decrease due to this project was offset somewhat by production from
the Edwards lease that began in July 2013.

2

In 2013 the Company did
not capitalize workover related expenditures since the Company was unsure of the reserve impact of the work and if the reserves
did not show an adequate increase, the expenditures would have to be expensed as the result of the ceiling test. In 2014 the Company
began to capitalize significant workover projects since the Company believes the increase in reserves will be enough to avoid being
required to expense these items as the result of the ceiling test.

The Company obtained approximately
$2,100,000 of convertible debt during three month period ended June 30, 2014. The cost of the original issue discount is the reason
for the increase in the derivative expense. The increase in debt accounted for approximately $27,000 of interest. In June of 2014,
the Company refinanced a loan and incurred a pre-payment penalty of $53,994 that was recorded in the interest expense category
since it is financing related.

The following table shows
the major changes in the components of the General and Administrative expenses for the three month period ended June 2014 as compared
to the three month period ended June 2013:

For the Three Months Ended

Increase or

June 2014

June 2013

(Decrease)

Debt issuance costs--TCA

$

-

$

196,500

$

(196,500)

Fees associated with new debt in 2013 were not repeated in 2014

Lawsuit accrual

-

205,100

(205,100)

Lawsuit was settled in 2013, therefor, no further accrual needed in 2014

Convertible debt fees

222,000

50,000

172,000

Fees associated with the convertible debt issuances which were much higher in 2014

S-1 fees

13,500

-

13,500

No S-1 was file in 2013

Directors' fees

45,000

-

45,000

Director fees did not start until August 2013

Payroll

30,000

-

30,000

CFO was added to payroll in July 2013. The amount represents net increase over CFO costs in professional fees.

Investor relations

200,000

15,000

185,000

Significantly more investor relations activity in 2014

Working interest receivable write-off

9,000

-

9,000

Instead of trying to collect currently, we will collect from production, if adequate

All other items

313,015

315,257

(2,242)

Total

$

832,515

$

781,857

$

50,658

For the Six Month Period Ended June 30,
2014 and June 30, 2013

Our net loss for the six
month period ended June 30, 2014 was $4,322,246 as compared to a loss for the six month period ended June 30, 2013 of $1,323,045.
For the three months ended June 30, 2014, the most significant factor that contributed to the loss was our efforts to satisfy
our accounts payable through the issuance of convertible debt. The significance of this effort can be seen in the following condensed
comparison of the results of operations for the six month periods ended June 30, 2014 and 2013:

3

For the Six Months Ended

Increase or

June 2014

June 2013

(Decrease)

% Change

Revenue

$

111,527

$

127,634

$

(16,107

)

-13

%

Cost of Revenue

321,936

341,997

(20,061

)

-6

%

Depletion and Depreciation

151,795

124,245

27,550

22

%

Derivative Expense

4,460,027

241,300

4,218,727

1748

%

General and Administrative Expense

1,430,803

982,178

448,625

46

%

Interest Expense

318,168

144,548

173,620

120

%

Net Loss

$

(6,571,202

)

$

(1,706,634

)

The biggest operating difference
that affected revenue when comparing 2013 and 2014, in addition to the items mentioned above, was the forced stoppage of production
in Knox County Texas as of the end of March 2013. The Texas Railroad Commission required us to cease production until some plugging
work and other items were completed to their satisfaction. Production did not resume in Knox County until July of 2014. The value
of production for the first three months of 2013 was approximately $26,700.

The cost of revenue change
for the six months ended June 30, 2013 compared to the six months ended June 30, 2014 is due to fees related to a Consulting and
Operating Agreement with Petron Energy, Inc. of $25,000 that started in May 2013 being offset by capitalized workover projects
in 2014.

The increase in depletion
and depreciation reflects the depreciation recorded in the first quarter of 2014 related to a significant equipment purchase made
in the third quarter of 2013.

We have raised approximately
$3,020,000 of convertible debt in the six month period ended June 30, 2014 as compared to $88,000 of convertible debt raised as
of June 30, 2013. There are beneficial conversion options included in the convertible debt. The value of these beneficial conversion
options is the reason for the increase in the derivative expense.

The following table shows
the major changes in the components of the General and Administrative expenses for the period of six months ended June 2014 as
compared to the period of six months ended June 2013:

For the Six Months
Ended

Increase or

June 2014

June 2013

(Decrease)

Debt issuance costs--TCA

$

-

$

196,500

$

(196,500)

Fees associated with new debt in 2013 were not repeated in 2014

Lawsuit accrual

-

205,100

(205,100)

Lawsuit was settled in 2013, therefore, no further accrual needed in 2014

Convertible debt fees

395,000

75,000

320,000

Fees associated with the convertible debt issuances which were much higher in 2014

S-1 fees

13,500

-

13,500

No S-1 was file in 2013

Directors' fees

90,000

-

90,000

Director fees did not start until August 2013

Payroll

60,000

-

60,000

CFO was added to payroll in July 2013. The amount represents net increase over CFO costs in professional fees.

Investor relations

345,900

27,000

318,900

Significantly more investor relations activity in 2014

Working interest receivable write-off

41,000

-

41,000

Instead of trying to collect currently, we will collect from production, if adequate

All other items

485,403

478,578

6,825

Total

$

1,430,803

$

982,178

$

448,625

4

Liquidity and Capital Resources

As of June 30, 2014, we
had a working capital deficit of approximately $4,450,000 as compared to a deficit in working capital of approximately $4,153,000
at December 31, 2013. The increase in the working capital deficit is due the combination of an increase in the derivative liability
and current notes payable of approximately $1,121,000 which more than offset a decrease in accounts payable and accrued expenses
of approximately $814,000. We intend to fund ongoing operations by continuing to raise capital from debt and equity sources. Our
efforts for the quarter ended June 30, 2014 resulted in capital being raised in the amount of approximately $2,201,000. A significant
part of our capital plan is to continue to draw down from the $10,000,000 investment agreement with CPUS Investment Group, LLC
dated December 13, 2013 (the “Investment Agreement”) that is in place. During the period of three months ended June
30, 2014 we drew down approximately $119,000. Pursuant to the terms of the Investment Agreement, the investor must fund requests
made by the Company to purchase stock as long as the ownership limits are met. The purchase price of the stock per the Investment
Agreement is 70% of the lowest closing bid price in the 10 days immediately before a funding request. In addition, management
plans to continue to raise additional funds through equity and/or debt financing, but there is no certainty that such financing
will be available or that it will be available at acceptable terms.

Off-Balance Sheet Arrangements

We have no significant
off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources
that are material to stockholders.

Contractual Obligations

We are a smaller reporting
company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this
item.

5

Future Financings

We will continue to rely
on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will
result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities
or arrange for debt or other financing to fund our operations and other activities.

Critical Accounting Policies

Our financial statements
and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on
a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
periods.

We regularly evaluate the
accounting policies and estimates that we use to prepare our financial statements. In general, management's estimates are based on historical experience, information
from third party professionals, and various other assumptions that are believed to be reasonable under the facts and circumstances.
Actual results could differ from those estimates made by management.

6

Recently Issued Accounting Pronouncements

The Company
has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not
believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial
position or results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK

We are a smaller reporting
company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this
item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of disclosure controls and
procedures.

Our Chief Executive Officer
and Principal Financial Officer, after evaluating the effectiveness of our "disclosure controls and procedures" (as defined
in the Securities Exchange Act of 1934, as amended (“Exchange Act”) Rules 13a-15(e) and 15d-15(e)) as of the end of
the period covered by this quarterly report (the "Evaluation Date"), has concluded that as of the Evaluation Date, our
disclosure controls and procedures were not effective to provide reasonable assurance that information we are required to disclose
in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated
to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions
regarding required disclosure.

Based on this evaluation,
our principal executive and principal financial and accounting officer concluded that our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) were not effective.

Changes in Internal Control over Financial Reporting

There have been no changes
in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange
Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely
to materially affect, our internal control over financial reporting.

7

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, the
Company may become subject to various legal proceedings that are incidental to the ordinary conduct of its business. Although the
Company cannot accurately predict the amount of any liability that may ultimately arise with respect to any of these matters, it
makes provision for potential liabilities when it deems them probable and reasonably estimable. These provisions are based on current
information and legal advice and may be adjusted from time to time according to developments.

Other than the foregoing, we know of no material,
existing or pending legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending
litigation. There are no proceedings in which our director, officer or any affiliates, or any registered or beneficial shareholder,
is an adverse party or has a material interest adverse to our interest.

ITEM 1A. RISK FACTORS

We are a smaller reporting
company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this
item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

1.

Quarterly Issuances—All amounts have been adjusted to reflect the impact of the 1 for
500 reverse stock split that was effective July 3, 2014:

The Company issued its common stock
during the quarter ended June 30, 2014 in the following transactions:

•

Sold
an
aggregate
of
115,167
shares
of
the
Company’s
restricted
common
stock
to
7
“accredited
investors”
in
private
transactions
for
aggregate
consideration
of
$65,600.

•

60,000
shares
of
the
Company’s
Series
B
Convertible
Preferred
Stock
converted
into
an
aggregate
of
300,000
shares
of
the
common
stock
of
the
Company.

•

Issued
125,984
shares
of
the
Company’s
restricted
common
stock
to
the
Company’s
directors
for
their
fees.

•

Issued
167,667
shares
of
the
Company’s
restricted
common
stock
to
vendors
for
services
rendered.

•

Issued
2,390,173
shares
of
its
common
stock
to
AGS
Capital
Group,
LLC
in
connection
with
convertible
promissory
notes
entered
into
by
and
between
the
Company
and
AGS
Capital
Group,
LLC
related
to
3(a)(9)
transactions.

•

Issued
1,238,957
shares
of
its
common
stock
to
WHC
Capital,
LLC
in
connection
with
convertible
promissory
notes
entered
into
by
and
between
the
Company
and
WHC
Capital,
LLC
related
to
3(a)(9)
transactions.

•

Issued
359,451
shares
of
its
common
stock
to
Asher
Enterprises,
Inc.
Capital,
LLC
in
connection
with
convertible
promissory
notes
entered
into
by
and
between
the
Company
and
Asher
Enterprises,
Inc.

•

Issued
1,556,542
shares
of
its
common
stock
to
LG
Capital
Funding,
LLC
in
connection
with
convertible
promissory
notes
entered
into
by
and
between
the
Company
and
LG
Capital
Funding,
LLC
related
to
3(a)(9)
transactions.

8

•

Issued
853,884
shares
of
its
common
stock
to
Union
Capital,
LLC
in
connection
with
convertible
promissory
notes
entered
into
by
and
between
the
Company
and
Union
Capital,
LLC
related
to
3(a)(9)
transactions.

•

Issued
2,537,736
shares
of
its
common
stock
to
Darling
Capital,
LLC
in
connection
with
convertible
promissory
notes
entered
into
by
and
between
the
Company
and
Darling
Capital,
LLC
related
to
3(a)(9)
transactions.

•

Issued
332,195
shares
of
its
common
stock
to
Auctus
Private
Equity
Fund,
LLC
in
connection
with
a
convertible
promissory
note
entered
into
by
and
between
the
Company
and
Auctus
Private
Equity
Fund,
LLC.

•

Issued
687,749
shares
of
its
common
stock
to
an
Institutional
Investor
in
connection
with
a
debt
exchange
agreement
entered
into
by
and
between
the
Company
and
the
Institutional
Investor
related
to
a
3(a)(9)
transaction.

•

Issued
698,000
shares
of
its
common
stock
to
JMJ
Financial
in
connection
with
a
convertible
promissory
note
entered
into
by
and
between
the
Company
and
JMJ
Financial.

•

Issued
557,192
shares
of
its
common
stock
to
May
Davis
Partners
Acquisition
Company,
LLC
in
connection
with
a
convertible
promissory
note
entered
into
by
and
between
the
Company
and
Continental
Equities,
LLC
and
assigned
to
May
Davis
Partners
Acquisition
Company,
LLC
by
Continental
Equities,
LLC
related
to
a
3(a)(9)
transaction.

•

Issued
1,986,892
shares
of
its
common
stock
to
Tangiers
Investment
Group,
LLC
in
connection
with
a
convertible
promissory
note
entered
into
by
and
between
the
Company
and
Tangiers
Investment
Group,
LLC
related
to
3(a)(10)
transaction.

•

Issued
2,803,843
shares
of
its
common
stock
to
Redwood
Management,
LLC
in
connection
with
convertible
promissory
notes
entered
into
by
and
between
the
Company
and
Redwood
Management,
LLC
related
to
3(a)(9)
transactions.

•

Issued
175,612
shares
of
its
common
stock
to
Lotus
Capital
Markets,
LLC
in
connection
with
a
convertible
promissory
note
entered
into
by
and
between
the
Company
and
Continental
Equities,
LLC
and
assigned
to
Lotus
Capital
Markets,
LLC
by
Continental
Equities,
LLC
related
to
a
3(a)(9)
transaction.

2.

Subsequent
Issuances—All
amounts
have
been
adjusted
to
reflect
the
impact
of
the
1
for
500
reverse
stock
split
that
was
effective
July
3,
2014:

Subsequent
to the quarter ended June 30, 2014, the Company issued shares of common stock in the following transactions:

•

Issued
114,545
shares
of
the
Company’s
restricted
common
stock
to
the
Company’s
directors
for
their
fees.

•

Issued
668,209
shares
of
its
common
stock
to
Redwood
Management,
LLC
in
connection
with
convertible
promissory
notes
entered
into
by
and
between
the
Company
and
Redwood
Management,
LLC
related
to
3(a)(9)
transactions.

•

Issued
604,734
shares
of
its
common
stock
to
LG
Capital
Funding,
LLC
in
connection
with
convertible
promissory
notes
entered
into
by
and
between
the
Company
and
LG
Capital
Funding,
LLC
related
to
3(a)(9)
transactions.

9

•

Issued
1,015,866
shares
of
its
common
stock
to
Union
Capital,
LLC
in
connection
with
convertible
promissory
notes
entered
into
by
and
between
the
Company
and
Union
Capital,
LLC
related
to
3(a)(9)
transactions.

•

Issued
109,603
shares
of
its
common
stock
to
AGS
Capital
Group,
LLC
in
connection
with
convertible
promissory
notes
entered
into
by
and
between
the
Company
and
AGS
Capital
Group,
LLC
related
to
3(a)(9)
transactions.

We
believe that the issuance and sale of the above securities were exempt from the registration and prospectus delivery requirements
of the Securities Act of 1933 by virtue of Section 4(2), Regulation D and/or Regulation S. The securities were issued directly
by us and did not involve a public offering or general solicitation. The recipient of the securities was afforded an opportunity
for effective access to files and records of our company that contained the relevant information needed to make their investment
decision, including our financial statements and 34 Act reports. We reasonably believed that the recipient, immediately prior
to issuing the securities, had such knowledge and experience in our financial and business matters that she was capable of evaluating
the merits and risks of its investment. The recipient had the opportunity to speak with our management on several occasions prior
to her investment decision. There were no commissions paid on the issuance and sale of the shares

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

NONE.

ITEM 4. MINE SAFETY DISCLOSURES

NONE.

ITEM 5. OTHER INFORMATION

Quarterly
Events

NONE

Subsequent
Events

NONE

10

ITEM 6. EXHIBITS

Exhibit Number

Description of Exhibit

Exhibit 3.1(1)

Articles of Incorporation

Exhibit 3.2(2)

Certificate of Amendment to Articles of Incorporation

Exhibit 3.2a(4)

Certificate of Amendment to Articles of Incorporation dated December 5, 2013 increasing
authorized common stock to 2,989,999,999 shares

Exhibit 3.2b(5)

Certificate of Amendment to Articles of Incorporation dated February 4, 2014 increasing
authorized common stock to 6,000,000,000 shares

Exhibit 3.2c(5)

Certificate of Amendment to Articles of Incorporation dated February 27, 2014 increasing
authorized common stock to 15,000,000,000 shares

Exhibit 3.2d(6)

Certificate of Amendment to Articles of Incorporation dated March 27, 2014 changing the
par value of the common stock from $0.001 to $0.0001

Exhibit 3.2e(8)

Certificate of Amendment to Articles of Incorporation dated May 30, 2014 increasing authorized
common stock to 25,000,000,000 shares

Exhibit 3.2f(9)

Certificate of Amendment to Articles of Incorporation dated June 20, 2014 changing the par
value of the common stock from $0.0001 to $0.00001

Pursuant
to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement
or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18
of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

(1)
Filed as exhibits to the Company’s Form S-1 Registration Statement filed with the Commission on July 10, 2009, and incorporated
herein by reference.

(2)
Filed as an exhibit to the Company’s Report on Form 8-K, filed with the Commission on October 18, 2011, and incorporated
herein by reference.

(3)
Filed as an exhibit to the Company’s Report on Form 8-K, filed with the Commission on February 17, 2012, and incorporated
herein by reference.

(4)
Filed as an exhibit to the Company’s S-1 Registration Statement filed with the Commission on December 16, 2013 and incorporated
herein by reference.

(5)
Filed as an exhibit to the Company’s Amendment 2 to its S-1 Registration Statement filed with the Commission on March 3,
2014 and incorporated herein by reference.

(6)
Filed as an exhibit to the Company’s Report on Form 8-K filed with the Commission on April 3, 2014 and incorporated herein
by reference.

(7)
Filed as an exhibit to the Company’s Report on Form 10-K filed with the Commission on April 9, 2014, and incorporated herein
by reference.

(8)
Filed as an exhibit to the Company’s Report on Form 8-K filed with the Commission on June 3, 2014, and incorporated herein
by reference.

(9)
Filed as an exhibit to the Company’s Report on Form 8-K filed with the Commission on June 20, 2014, and incorporated herein
by reference.

11

SIGNATURES

Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.